Condo Flood Insurance: How the RCBAP Works for Boards

The storm drain at the bottom of the parking lot backs up overnight. By morning there's two feet of water in the garage level, the elevator pit is full, and the boiler room is soaked. The manager calls the carrier on the master policy and gets the answer nobody on the board expected: flood isn't covered.

That's how a lot of boards learn the difference between their master policy and a flood policy. A standard condo master policy excludes flood. To cover the building against flooding, the association needs a separate policy, and for most associations that's an RCBAP (Residential Condominium Building Association Policy) from the National Flood Insurance Program.

A few questions tell you quickly where your building stands:

• Does the association carry a separate flood policy on every building, or only some?
• What flood zone is each building in, and when did someone last check the map?
• Is each building insured for at least 80% of its replacement cost, or the most the program allows?
• If the flood limit came up short, would your owners know their share could come back to them as an assessment?

This guide walks through what an RCBAP covers, where associations usually come up short, and what to check before your next renewal.

Your master policy doesn't cover flood

Almost every condo master policy lists flood as an exclusion. That catches boards off guard, because the master policy covers so much else: fire, wind, hail, a burst pipe, a car through the lobby window. But water that comes in from outside, such as a creek over its banks or heavy rain that pools faster than it drains, is a separate risk and it's written separately.

The same is true for owners. An HO-6 policy on a unit doesn't cover flood either. So when water comes in from outside, the building, the common areas and the units can all be uninsured at once, unless someone bought flood coverage on purpose.

A lot of boards think of flood as a coastal problem. It isn't. Flash floods, fast snowmelt, a creek behind the property, a parking garage below street level: inland buildings flood too. Plenty of them sit outside a mapped high-risk zone, where no lender ever required the coverage, so nobody bought it.

What an RCBAP is

The RCBAP is the National Flood Insurance Program's policy for condominium associations. A few things set it apart from other flood policies:

• Only the association can buy it. An owner can't buy an RCBAP for a single unit.
• The building has to be mostly residential. At least 75% of the floor area must be residential. A mixed-use building with more commercial space than that needs a different policy.
• It's one building per policy. A community with six buildings needs six policies, each with its own limit.
• It covers the whole building, units included. That means the structure and foundation, the walls, floors and built-in cabinets inside units, and the equipment that runs the building, like furnaces, water heaters, central air and electrical systems.

Building damage is paid at replacement cost, meaning what it costs to rebuild, with no deduction for age. Property the association owns, like lobby furniture or a fitness room's equipment, is covered separately and paid at actual cash value, meaning depreciation comes off.

What an RCBAP covers, and what it doesn't

Covered	Not covered
The building and its foundation, including the units' walls, floors and built-in cabinets	Outside property: landscaping, walkways, decks, patios, fences, retaining and sea walls, pools and hot tubs
Building systems: electrical, furnaces, central air, water heaters, heat pumps, sump pumps	Temporary housing for owners who can't live in their units
Fuel tanks, solar equipment, well tanks and pumps	Lost income or loss of use
Permanently installed carpet, paneling, wallboard and bookcases	Water that seeps up through the ground
Attached staircases and anchoring systems	Mold the association could have prevented
Sewer backup, but only when flooding directly causes it	Cars, including those parked in the garage
Property the association owns, if the policy includes it	The cost of meeting current building codes, beyond the program's limited allowance for this

Two items on that list surprise boards the most.

Basements and below-grade garages. Areas below ground level get limited coverage. The policy pays for the structure and the equipment there, but not much of the finished space. A clubhouse, fitness room or storage area below ground may not come back the way it was.

Owners' cars. A flooded parking garage is covered as part of the building, but the cars in it aren't. Those fall under each owner's own auto policy, and only if they carry comprehensive coverage.

The 80% rule and the per-unit cap: where boards come up short

Two limits decide whether an RCBAP pays a claim in full.

The 80% rule. The building needs to be insured for at least 80% of what it would cost to rebuild, or the most the program allows, whichever is less. Fall short and the claim payment is cut in proportion. A building that should carry 80% of its value but only carries 40% collects about half of a covered loss. That's true even on a small claim, when the limit was never close to being used up.

The program cap. The program limits building coverage to a set amount per unit, times the number of units. For larger buildings, or buildings that are expensive to rebuild, that cap can fall well short of the real cost. Insuring to the cap avoids the 80% penalty, but it leaves a gap between what the policy pays and what the rebuild costs. Associations can fill that gap with excess flood coverage from the private market, which sits on top of the RCBAP.

In our experience, the shortfall rarely comes from one big decision. It comes from small ones that pile up:

• A flood limit set years ago and never revisited, while construction costs kept climbing
• A building value updated on the master policy but not on the flood policy
• A newer building in the community that never got its own flood policy
• A deductible raised to save premium, without anyone checking what owners would be assessed afterward

When did your board last compare the flood limit to what the building would cost to rebuild today?

What happens to owners when the building is underinsured

When a flood claim comes up short, whether from the 80% penalty, the program cap or the deductible, the repairs still have to get done. The association usually covers the difference the only way it can: a special assessment on the owners.

That's when owners find out what their own policies do and don't cover.

An HO-6 policy won't help. Most HO-6 policies include loss assessment coverage, but it follows the HO-6's own rules, and the HO-6 excludes flood. So a flood assessment generally isn't covered. (Our loss assessment guide explains how that coverage works.)

The RCBAP won't pay it either. The association's flood policy specifically excludes assessments charged to owners to cover repair costs.

A unit owner's own flood policy can. Owners can buy an NFIP Dwelling Policy for their unit. It covers the unit's improvements and belongings, and it can pay some or all of an owner's share of a flood assessment for damage to the building. It doesn't cover every assessment, and the details depend on why the association came up short. Still, it's the only standard policy built for this situation.

Most owners have never heard of it, and most boards have never told them. It's worth asking:

• Do your owners know the master policy and their HO-6 both exclude flood?
• If a flood assessment landed next month, how many owners could pay it?
• Has the board ever put flood coverage in front of owners, in a newsletter, at the annual meeting or in the resale packet?

A board that explains this before a flood is having a very different conversation than one explaining it after.

What lenders check

When an owner sells or refinances a unit in a building inside a FEMA high-risk flood zone, the lender checks the association's flood coverage. Under Fannie Mae's rules, which most conventional lenders follow, that means:

• The association carries flood coverage on the building. That's an RCBAP, or a private policy that's at least as broad.
• The building limit meets the minimum. It has to be at least 80% of the building's replacement cost, or the most the program allows per unit, whichever is less.
• The whole building is covered. That includes common areas and the equipment that runs it.
• Association-owned property is covered, up to its full replacement cost or the program maximum.
• The deductible doesn't exceed the program's maximum for condo associations.

If the association's policy meets the 80% minimum but the per-unit share still falls short of what the lender requires for that unit, the owner has to buy a supplemental flood policy to make up the difference. That usually comes up a few weeks before closing, which is the worst possible time.

Lenders only verify the building the unit is in. So a community with one building in the flood zone and five outside it can pass review on one sale and fail on the next. Freddie Mac, FHA and VA have their own versions of these rules. They're similar, but not identical. Our Fannie Mae requirements guide covers the rest of what lenders check on the master policy.

NFIP or private flood

The RCBAP isn't the only option. Private carriers also write flood coverage for condo associations, and lenders accept it when it's at least as broad as the federal policy and the insurer meets their rating standards.

	NFIP (RCBAP)	Private flood
Coverage terms	Set by federal rule, the same everywhere	Vary by carrier and can be broader
Building limit	Capped per unit	Can go higher
Lost income and loss of use	Not covered	Sometimes available
Waiting period on new policies	Generally 30 days, with some exceptions	Often shorter, depending on the carrier
Availability	Any building in a participating community	Depends on the carrier's appetite for the building and area
Depends on Congress	Yes	No

That last row matters. The federal flood program has to be renewed by Congress on a regular schedule. When it lapses, new policies can't be issued and renewals can get caught up too, until Congress acts.

For many associations, the answer isn't either/or. A common setup is an RCBAP as the base layer, with private excess flood on top to cover the gap between the program cap and the real rebuild cost. The right mix depends on the building, its flood zone, its value and what the governing documents require the association to insure.

How to check your flood coverage before renewal

Start this 60 to 90 days before the flood policy renews. That's enough time to fix what you find.

1. Pull the flood zone for every building. FEMA's maps change. Look each building up on the FEMA Flood Map Service Center, not just the one the last lender asked about.

2. Confirm every building has its own flood policy, or a clear decision on record not to carry one.

3. Compare each building's flood limit to today's rebuild cost. Use the same updated value as the master policy. If the limit is under 80%, the next claim will be cut.

4. Check whether the rebuild cost is above the program cap. If it is, ask about private excess flood to close the gap.

5. Check the deductible two ways: against the lender maximum, and against what each owner would be assessed if the association had to cover it.

6. Read what your governing documents require the association to insure. The flood policy should match.

7. Tell your owners. Their HO-6 doesn't cover flood, the master policy doesn't either, and a Dwelling Policy for their unit is the option built for this.

8. Don't let the policy lapse. Renew early, especially when Congress is close to a deadline on the federal program.

For a quick first look at where your association may be exposed, our HOA risk calculator assesses your exposure, not your price.

Frequently asked questions

Does a condo master policy cover flood?

Almost never. Standard master policies exclude flood. The association needs a separate flood policy, usually an RCBAP from the National Flood Insurance Program, or a private flood policy.

What is an RCBAP?

The Residential Condominium Building Association Policy is the National Flood Insurance Program's flood policy for condo associations. Only the association can buy it, the building has to be at least 75% residential, and it covers the whole building, units included.

Does an HO-6 policy cover flood?

No. HO-6 policies exclude flood, including the loss assessment coverage inside them. Owners who want flood coverage for their unit need a separate flood policy, such as an NFIP Dwelling Policy.

Is flood insurance required for a condo association?

For a building in a FEMA high-risk flood zone, lenders generally require it before they'll finance a unit there. Outside those zones it's usually optional, unless the governing documents require it. Many floods happen outside high-risk zones, so optional doesn't mean low risk.

How much flood coverage does a condo association need?

At least 80% of the building's rebuild cost, or the most the program allows per unit, whichever is less. That avoids the coinsurance penalty and meets most lender minimums. Covering the full rebuild cost may take private excess flood on top.

Can an association buy private flood instead of an RCBAP?

Yes. Lenders accept private flood when it's at least as broad as the federal policy and the insurer meets their rating standards. Some associations use both, with the RCBAP as the base and private excess on top.

What happens if our flood coverage comes up short?

The claim payment can be cut, owners can face special assessments their HO-6 won't cover, and lenders can require buyers to carry extra flood coverage before closing. Most gaps can be fixed at renewal. When did your board last look at its flood policy next to the master policy?